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The Federal Open Market Committee decided that the federal funds rate should be 1.5-1.75% rather than...

The Federal Open Market Committee decided that the federal funds rate should be 1.5-1.75% rather than the current rate of 1.75-2%. The appropriate open market action is to _____ Treasury bills to _____ money _____.

purchase; increase; demand

purchase; increase; supply

sell; decrease; demand

sell; decrease; supply
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Answer #1

Answer : The answer is option B.

To decrease the federal fund rate the Federal Open Market Committee purchase treasury bills. This increase the money supply in the economy. As a result, the federal fund rate decrease. Here the Federal Open Market Committee is decided to decrease the federal fund rate from 1.75-2% to 1.5-1.75%. So, definitely the Federal Open Market Committee will purchase treasury bills which will increase the money supply in the economy. Hence except option B other options are not correct. Therefore, option B is the correct answer.

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